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Unleashing our cities

Exciting new powers are being promised to England’s great cities – just as their budgets are being slashed

What’s the plan?

Giving greater power to Britain’s cities has been an official coalition priority since it took office in 2010. At the time, David Cameron talked of a great “power shift” from Whitehall to local authorities and to elected mayors. And in 2011, the coalition’s “Localism Bill” did give councils more flexibility on planning issues. But the real catalyst for the idea of greater autonomy for regions of the UK – and for cities such as Manchester, Liverpool and Bristol, in particular – was the Scottish independence referendum. The Chancellor, George Osborne, a keen supporter of local autonomy, envisions, among other things, a “Northern Powerhouse” freed from the strictures of Westminster.

And are those strictures onerous?

Immensely. Scotland may be poised to receive important new powers, but the rest of Britain remains one of the most centralised states in the Western world. About 95% of all taxes collected in the UK are collected by the centre – even local business rates are fixed centrally. The remaining 5% is council tax, the only tax that localities can call their own, whereas in the US, Sweden and Canada, locally collected sales, property and even income taxes account for more than 30% of all tax collected. In Britain, local governments are thus hugely dependent on central grants (70% of their revenues in 2011, compared to just 35% of German local government revenues and 29% of French), and as a result have very little discretion about what they can spend the money on.

What is the major consequence of that?

A lack of growth. The capital projects that local governments are responsible for – roads, schools, housing, waste infrastructure – are the very lifeblood of a city’s health. Yet such vital investments are strictly controlled by the centre via the “capital guidelines” of central departments (which, in a telling phrase, specify “the Government’s measure of local need”) and by the Public Works Loans Board. The Board’s advances, on which local councils rely for capital spending, have slumped since the recession. Indeed, as central government restricts the funds available for local capital projects, local authorities are having trouble paying off existing loans, let alone borrowing for new projects.

So what’s the new plan?

An influential study by the Royal Society of Arts (RSA), led by Jim O’Neill, former chief economist at Goldman Sachs, claims that if the 14 largest “metros” after London were freed to grow their local economies, they’d add £79bn or 5% to Britain’s GDP by 2030. It says cities should be given far more control over taxation, borrowing, social care, housing and skills; and it recommends huge extra investment in transport, internet infrastructure and universities. “For these metros, central government must step back as soon as practical,” it argues. Manchester has now become the first such “metro” to get the green light.

What is happening there?

Last month, in a “devolution” deal hailed across the political spectrum, Osborne announced that Greater Manchester would be given control over £7bn in local spending to cover the area’s housing, healthcare and transport budgets, and to set up a London-style “Oyster” card designed to integrate the region’s towns and suburbs. From 2017, the new “metro” will also have its own directly elected mayor. “It’s revolutionary... [a model] cities around the country would want to adopt and copy,” says Sir Richard Leese, leader of the newly created Greater Manchester Combined Authority – a merger of ten local boroughs.

Will other cities want to adopt it?

Not necessarily. In the first place it won’t actually be Manchester that gets its own mayor in 2017, but this newly merged entity. For some that’s attractive: O’Neill has coined the name “ManSheffLeedsPool” to refer to an even bigger urban region of seven million people that’s meant to become the new Northern Powerhouse. The mayor of Bristol, George Ferguson, is trying to persuade the city’s four local councils to merge, team up with Cardiff and create a Western equivalent. But if such megacities bring advantages of economic scale, they also lose any sense of local, cultural identity. It’s also unclear where the new money for such “metros” is coming from. From whose budgets is it being diverted? What is clear, is that £7bn isn’t as generous as it sounds.

Why is that?

Because local government expenditure has borne the brunt of spending cuts: it has fallen sharply since 2009, and is scheduled to go on doing so, while central government spending has continued to rise. Manchester, seen as the best-positioned city after London to run its own affairs, has an annual £4bn-£5bn deficit. Liverpool and Birmingham are even worse off. In Newcastle, spending on Sure Start services for children and families is about to be cut by 40%. “Whatever they’re giving back to the [Manchester] region with this plan,” says Liverpool’s elected mayor, Joe Anderson, “is nothing compared to what they’re taking away... It’s like taking a house off you and giving you a shed to live in.”

So what else needs to be done?

The UK’s metros will only thrive, says the RSA, if there’s genuine fiscal devolution: they must collect more of their own taxes and be free to control their own budgets, spend their capital reserves and borrow on international markets. Yet ever since “equalisation grants” were introduced in the 1920s to iron out differences in education, health and prosperity across rich and poor boroughs, the whole drift of legislation has been in the opposite direction (see box): to limit the power of local governments to diverge from standards laid down in Westminster. Nor have the voters seemed eager to free themselves from Whitehall’s grip. As recently as 2012, nine out of 11 of England’s largest cities, Manchester included, rejected the idea of having directly elected mayors. The irony is that Manchester is now getting one... imposed by a chancellor in London.

The heyday of the local state

Until the mid-19th century, the quirks of local government – centuries of accreted laws; the lack of a written constitution; a loathing of national taxes – were seen as essentially English. In 1634, King Charles I’s attempt to extend “Ship Money”, a tax on seaports to pay for the Royal Navy, triggered the events that led to the Civil War and his own beheading. Centralised government was for others, primarily the French. In the 1820s, Sir Robert Peel’s plan to introduce a national police force was decried as “expensive, tyrannical and foreign”.

Things changed with the extension of the franchise. The Second Reform Act of 1867 catalysed a growing unease among the middle classes at the poverty, dirt and danger of life in Britain’s big cities and effected a revolution in local government. In 1867, Birmingham‘s reforming Liberal mayor, Joseph Chamberlain, led a remarkable transformation of a city whose ruling elite had hitherto wanted to revoke its incorporated status just to save money. His example was followed by other municipalities up and down Britain. By the turn of the 20th century, virtually all public services were provided by local government. That all changed after 1918, however: with the extension of universal suffrage, the drive to build a centralised welfare state began.